Mutual funds and fixed deposits are two good short-term investment schemes which you can opt! But, when it comes to risk and returns, FDs are a bit ahead. Before we even begin, it would be great to understand the basic difference between a fixed deposit and mutual funds.
Mutual funds consist of a batch of investment made by numerous investors in various holdings. With the gradual passage of time, these investments grow and generate profits.
On the other hand, fixed deposits are saving that are invested in a financial company or bank over a certain time and generate returns.
The FD interest rates are quite high, and it could go up to 8.10% as per your membership status with the lender. But, the FD interest rates vary from creditor to creditor.
You should also note that mutual funds and FDs have their own features and they may be ideal for you depending on matching your requirements.
In the context of the same, let’s provide some immediate benefits of the fixed deposit.
Reason #1 – Enhanced safety and reliability
A fixed deposit (FD) gives you sure-shot returns if you invest some money based on your tenor and membership status with the lender or age. FDs are generally not impacted by market fluctuations and are almost a risk-free investment scheme. However, mutual funds are always a risky investment venture and affected by markets.
Reason #2 – Liquidity
Fixed deposit provides you with great convenience of the liquidity. Yes, you always have the liberty to break your FDs before maturity and utilize the amount in case of a crisis demanding urgent cash flows.
Reason #3 – High FD interest rates
If you invest in some short-term FDs, it provides you with an attractive interest-rate which also let you access a decent income source. What’s more, if you opt for non-cumulative FD, you also become eligible to receive the FD interest rates returns multiple times. As a result, you also get an income source to pay for your outstanding and other household chores. When you invest in long-term FDs, it gives a gigantic growth to your invested amount on the whole and also provides you a much more matured principal, especially at the time of opting for a cumulative FD.
Reason #4 – An amazing retirement source
People seeking retirements typically want a reliable income source that will keep them covered all through their life after the employment completion. Fixed deposits are such a source. Why? Once you set aside some funds (minimum Rs.25,000) in an FD, you can also use the interest part to give a boost to your living standard even after retiring.
Reason #5 – Provides you with capital for multiple purposes
Want to go abroad on a trip with family or purchase an asset? You can consider investing in numerous fixed deposit schemes and convert it into an income source which can come to you during different times such as monthly, quarterly and annually.
The Bottom Line
Although fixed deposits have various advantages going in its favour compared to mutual funds and other short-term investment plans, it is completely your call to invest in one as per your requirements.
If you are not dead sure about whether a mutual fund or a fixed deposit will be beneficial for you, you can always consult a financial advisor to get a clear picture.
Some people may opt for mutual funds, and some people may go for fixed deposits as per their short-term life and financial goals.
Want to calculate return amount on FD? You can utilize an FD calculator available free on leading lender’s website and know the exact profits and then make a decision! All the best!